Hong Kong should study how Singapore awards infrastructure contracts
A system that rewards the lowest bidder encourages a race to the bottom, while rewarding bids close to the average promotes honest pricing
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As Hong Kong prepares for another major push in public works, one question deserves far more attention than it has received: are we buying infrastructure in a way that is sustainable for the construction industry and the public as a whole?
In his February budget, Financial Secretary Paul Chan Mo-po announced that HK$150 billion (US$19.1 billion) will be transferred from the Exchange Fund to support the Northern Metropolis and other infrastructure projects in the coming two years. This major commitment of public resources signals that the government intends to keep the works programme moving despite financial pressure. That makes it even more important to ask whether our tender evaluation system is producing healthy competition.At present, Hong Kong’s tender price evaluation method for infrastructure projects generally gives the highest price score to the lowest bid. That score normally accounts for 60 per cent of the total, with the remaining 40 per cent based on technical attributes. As recent research from New Zealand pointed out, once price is given a weighting higher than 25-30 per cent, it is typically the deciding factor.
AdvertisementOn the surface, the approach appears to protect taxpayers. In practice, it encourages underbidding, squeezes margins and creates unhealthy conditions across the industry’s long supply chain. In recent years, we have seen several instances of construction firms failing to pay workers’ wages on time.Singapore offers a useful contrast. In many public procurements there, the bid closest to the average price receives the highest pricing score, with those that are significantly above or below the norm scoring less well. This is not a rejection of competition. It is a recognition that bids clustering around a realistic market price are often more credible and sustainable than those driven to the bottom.
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Tai Po deadly blaze exposes bid-rigging in Hong Kong building renovation marketThe difference between these two approaches is not merely technical. It shapes contractor behaviour. If the system primarily rewards the lowest price, firms have every incentive to cut deeper than their rivals. If the system rewards the bid closest to the average, firms are encouraged to price more honestly and realistically. One system pushes the market towards the floor; the other anchors it around a fair midpoint.AdvertisementAdvertisementSelect VoiceSelect Speed0.8x0.9x1.0x1.1x1.2x1.5x1.75x00:0000:001.00x